Another Problem with the Skills Gap Argument

Jared Bernstein has a pretty interesting post up regarding the Beveridge Curve, which in turn has some impact on the skills gap arguments taking place in Maine.  Skills gap proponents in Maine like to point to national trends to bolster their argument that the state is suffering from the national trend. On the national level, skills gap proponents often throw the Beveridge Curve (“BC”) out as evidence that the primary driver of unemployment is a mismatch of skills demanded by employers, and supplied by workers.  For those unfamiliar with the BC:

The Beveridge Curve relates unemployment to the vacancy rate (the number of job openings divided by the number of jobs). In general, higher rates of unemployment are associated with lower vacancy rates. However, in the last couple of years there has been some increase in the vacancy rate without as large a drop in unemployment as would ordinarily be expected. This is taken as evidence that employers are having difficulty finding workers with the necessary skills in spite of the large number of unemployed workers. This is the story of structural unemployment.

And here is the BC:

During recessions, the slope will move downward and to the right.  During expansions, it moves up and to the left.  The recent trend, beginning in Jun, 2009 as plotted on the graph, is what skills gap proponents are pointing to bolster their argument.  While it would appear that the BC comports with the skills gap crowd, research from the Brookings Institute challenges that argument.

In a paper released earlier this year, Alan Kruger et al found that discounting the long-term unemployed had a profound effect on the BC:

Bev Curve

What does this mean?  A paper from the Boston Fed suggests that long-term unemployment benefits are de-incentiving work.  However, recently the left-leaning Economic Policy Institute and right-leaning American Enterprise Institute argued that cutting unemployment benefits did not push people back into the labor market.  Dean Baker argues that if unemployment benefits are de-incentiving work, then we should see an outward shift in the BC for the short-term unemployed as well.

Similarly, if there were a skills gap, then we would expect to see an outward shift in the BC for both the short- and long-term unemployed.  The counter would be that the longer people are unemployed, the more their skills erode and the industries they worked have changed, requiring different skills.  However, as noted here previously, arguments that the skills gap was driving unemployment started in 2010 – 2011, almost immediately following the 2008 recession.  It’s hard to fathom that skills and industries eroded and changed so drastically that people were subsequently unemployable.  And if they were, then even the short-term unemployed would have had trouble finding work, and the BC would have shifted outward.

Studies suggest that qualified candidates who had been unemployed for 6 months or longer were less likely to he hired than less qualified candidates who had been unemployed for a shorter time period.  As Rhand Gayad, and author of such a study, stated:

It isn’t that firms aren’t finding the right workers, but that employers are screening out the long-​​term unemployed.

The two final points to make regarding the skills gap argument are these.  Assuming that the BC for the long-term unemployed is evidence of a skills gap, wages are not rising as would be expected in a tightening labor market.  While the BC or the short-term unemployed is parallel to previous years, under-employment (for instance, involuntary part-time work) is elevated still, meaning the labor market is not tightening as much as the BC would suggest.  Couple this with stagnant wages and the above discussion on the long-term unemployed, and the skills gap argument is still lacking concrete evidence.



John Haskell

About John Haskell

John graduated from the University of Southern Maine with a degree in Political Science, and from the University of Maine School of Law. He has worked in both the public and private sectors, and currently, works with a small business services company in the Mid-Coast area.